Tech Industry

Microsoft judge: Settlement changes?

In an unusual move, a federal judge asks Microsoft and the Justice Department if they plan any changes to their proposed settlement in response to public comments.

WASHINGTON--A federal judge has asked Microsoft and the Justice Department to file a joint status report on their proposed settlement and, in an unusual move, has asked if they're planning any changes to the settlement in response to public comments.

U.S. District Judge Colleen Kollar-Kotelly's order late Wednesday came two days after 60 days of public comment on the settlement ended. The Justice Department expected that thousands of comments would pour in, partly because of canvassing on the part of Microsoft through its Freedom to Innovate initiative and because of Microsoft competitors working through trade groups.

Kollar-Kotelly's order sets in motion the final approval process for the antitrust settlement cut in early November by Microsoft, the Justice Department and nine of 18 states. That settlement has been undergoing a prolonged approval process as required by the Tunney Act, a Nixon-era law designed to ensure that antitrust settlements are in the public interest and that no backroom political deal-making compromises the process.

Jonathan Jacobson, an antitrust attorney with Akin, Gump, Strauss, Hauer & Feld in New York, said the judge's asking for a status report is not out of the ordinary, but the query about settlement changes is highly unusual.

"I am not aware of a court ever asking settling parties in a Tunney Act proceeding expressly whether they intend to change a settlement as the result of comments received," Jacobson said. "It's an unusual question that may (be a) sign she has some skepticism about the settlement and possibly sees some substance to the objections."

Andy Gavil, an antitrust professor with Howard University School of Law, also saw some significance to Kollar-Kotelly's query on settlement changes.

"It's not an unreasonable question to ask," Gavil said. "You do wonder if--in the way she has put it--she isn't subtly inviting them to be specific about whether the objections are so substantial they think changes are in order. I think she's got some surprises left for everyone."

The judge's handling of this matter and other recent orders and responses shows "she's being careful, methodical and thoughtful," Gavil added. "That's exactly what she needed to be."

In her order, Kollar-Kotelly asked Microsoft and the Justice Department to file a joint status report by Feb. 7 that outlines:

• Any changes to the settlement.

• The timetable for the submission of any modifications of the proposed final judgment.

• The "tone" of public comments.

• "The nature of any hearing at which the parties propose to present arguments and/or evidence" in support of the remedy proposal.

Rich Gray, a Silicon Valley-based attorney closely following the trial, also saw significance to Kollar-Kotelly's query on settlement changes, but cautioned: "You always have to be very careful interpreting a judge's comments, which are not meant to be an actual ruling. Sometimes the cues are in no way an indication of what the judge thinks."

But Gray said, "In this instance, I think it is. I think the judge is signaling very strongly that the combination of the public comments, what she's hearing from the dissenting states and possibly issues raised by the Netscape lawsuit are inclining her not to approve the settlement. But you can rest assured, being a good judge, she hasn't really decided yet."

The judge scheduled a status conference for Feb. 8.

The Justice Department has until Feb. 28 to respond to public comment, at which time Kollar-Kotelly will consider accepting, amending or rejecting the proposed settlement. As indicated by her court order, Kollar-Kotelly also could hold hearings before rendering her decision.

The dissenters' case
Meanwhile, the other track of the landmark case proceeds toward a March 11 remedy hearing.

Nine states and the District of Columbia chose to litigate rather than settle the case. In December, they filed a proposed remedy that goes beyond the scope of the Justice Department settlement.

The Justice Department settlement would place restrictions on Microsoft's business practices, but the Windows operating system, at the heart of a court ruling that branded Microsoft a monopolist, would emerge largely unchanged, and Windows XP--once a focal point of further proceedings--would be free of any significant restrictions.

The litigating states, by contrast, want restrictions affecting Microsoft software. They want Microsoft to be forced to give away the source code to the Internet Explorer Web browser and to license, through auction, its popular Office software for competing operating systems. They're also asking that the software behemoth be compelled to give away the source code for Windows itself should the company ever violate the agreement.

California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia--and the District of Columbia--are continuing the litigation. Illinois, Kentucky, Louisiana, Maryland, Michigan, New York, North Carolina, Ohio and Wisconsin signed onto the settlement.

The nine states that settled will receive about $10 million from Microsoft to offset legal costs incurred by taxpayers, the Associated Press reported. Federal law calls for companies that are found liable for antitrust violations to reimburse such costs. The non-settling states will also eventually recoup their legal expenses, but the law does not apply to the federal government's costs, the AP reported.

Discovery is under way on the second track of the case, with depositions scheduled to start Friday. A deposition is sworn oral testimony generally available only to the parties in the action.

The AP, CNN, The Los Angeles Times, The Washington Post and several other news organizations oppose a Microsoft request that could close part, or eventually all, of the depositions. Kollar-Kotelly this week ruled partly in favor of Microsoft, but the news organizations have requested a hearing to present arguments on the matter.

Two other cases related to the antitrust lawsuit are pending before Kollar-Kotelly. Last Thursday, the American Antirust Institute (AAI) filed a lawsuit asking the judge to temporarily suspend the Tunney Act process and demand that the Justice Department and Microsoft further disclose, among other things, their communications related to the settlement and reasons for rejecting viable alternatives.

A lawsuit filed last week by AOL Time Warner subsidiary Netscape opened a major new legal front for Microsoft. Netscape is suing for damages incurred from Microsoft's anticompetitive behavior during the browser wars.

In November 1999 and April 2000 rulings, U.S. District Judge Thomas Penfield Jackson found that Microsoft had used its monopoly might to squash Netscape. In June 2001, a seven-panel appeals court upheld eight separate antitrust violations against Microsoft.

It is not illegal to be a monopoly under U.S. antitrust law, but Jackson found that Microsoft used illegal means to preserve its monopoly in Intel-based operating systems.